Originally published by AxiTrader
Welcome to the Forex Today column.
In it, I'll be trying to add a bit more colour and a lot more charts than I do in my broader overnight Market Wrap I do first thing every morning to set myself and my trading up for each day and each week.
RECAP
Last night was an interesting reversal for the US dollar.
It was hammered by the commodity bloc, which gained on the back of the surge in Chinese base metals yesterday. It was beaten up by the majors in two rounds after first the dissolution of President Trump's business council undermined faith he'll get anything done and then after the FOMC minutes highlighted lingering uncertainty and division.
So this morning we have the Aussie dollar back above 79 cents, the kiwi above 73 cents, USD/CAD is back near 1.26, and the euro is climbing back toward 1.18. USD/JPY is back at 110 and the pound is around 1.29. The Swiss franc is back at 0.9650. And USD/SGD is back in the low 1.36 region.
It was a night of US dollar reversal.
HERE'S A DEEPER DIVE - IN A LITTLE MORE DETAIL AND WITH A FEW CHARTS
It could be a one day wonder. US dollar weakness will be cured if the improvement in the data flow continues. But the bull case has had some damage done to it over the past 24 hours.
And as a result, I’m out.
Out of all long US dollar, short currencies against it, positions after stops took me out last night on what remained of my positions.
The price action of the dollar is a strong sign that traders are not certain that they believe the dollar is where they want to be. Of course that’s always the way for the first wave of a move. The second wave - reversal against the first- is the uncertainty leg as traders wonder if the previous trend is actually ended or the reversal is just a hiatus before that bigger trend reasserts itself.
Behaviourally that is exactly where we are right now.
Of course, last night's US dollar weakness was based both on what seems to have been a belief that the Trump agenda is now dead after he disbanded his two business advisory councils and what has been read as a dovish outlook for the Fed.
In the first instance that seems fair. In the second I won't quibble with the market's read of the Fed minutes. But I will note that the data has improved since the meeting and further improvements in the data - should they come - will positively impact the US dollar and expectations about the Fed.
Sentiment and price action in forex markets is very fluid at the moment
So unless we see some solid data out of the US again soon there is a chance that the US dollar drifts again.
Technically that fundamental position is supported in a number of currencies.
The euro has held above the 38.2% retracement level of the recent upmove since last week’s lows. The Australian dollar has just had a very powerful rally of its own 38.2% retracement level, and Sterling has held onto an important uptrend.
So the dollar is not out of the woods yet.
Here's a few charts.
EUR/USD - still holding above the 38.2% level at 1.1680
USD/JPY - looking to retest the break of the down trend
GBP/USD - finding support at the trend line as UK unemployment hits its lowest level since 1975, 4.4%.
USD/CAD - broke the uptrned from the low and needs to hold 1.2595/1.2600.
As usual I've done my normal Australian dollar column - you can read it here.
One thing worth noting. I'm going to go where the price action and the data flow takes me. So while last night was an awful reversal and the US dollar has back off, it is equally worth noting that neither has it plumbed new lows.
We are in a state of flux. Trend reversal or trend extension?
The jury is still out.
Have a great day's trading.